1. These two appeals have been filed by two different assessees, namely, Bakliwal Corporate Services P. Ltd. (ITA No. 7804/M/2003) and Bakliwal Share & Stock P. Ltd. (ITA No. 7805/M/2003). Both the appeals relate to AY 2001-02 and involve common issues. We therefore find it convenient to dispose off both of them by a consolidated order.
The ld. CIT(A) has erred in confirming the order of the Assessing Officer that the depreciation was not allowable on stock exchange card. The error in confirming the order of the Assessing Officer occurred on account of the following reasons:Vinay Bubna v. Stock Exchange, Mumbai 97, Comp. Cases 874 : 21, SCL, 216 and in Stock Exchange Ahmedabad v. ACIT 248 ITR 209 : 115 Taxman 471 have been rendered in a totally different context.
b) The ld. CYT(A) has erred in confirming the view of the Assessing Officer that Section 47(xi) of the Income-tax Act is irrelevant.
c) The ld. CIT(A) has erred in not appreciating that the membership Card is in the nature of licence or franchise.
d) The ld. CIT(A) has failed to appreciate the ratio of the decision in the case of Upendra M. Dalai v. DCIT ITA No. 6202/Mum/99 holding BSE card to be a capital asset.
e) The ld. CIT(A) has erred in coming to a conclusion that the appellant was not the owner of the Stock Exchange Card.
f) The ld. CIT(A) has erred in confirming the view of the Assessing Officer that the membership of the exchange is a personal asset and therefore not entitled to depreciation.
g) The ld. CIT(A) has erred in not appreciating the fact that wear and tear is only one of the tests to be applied for allowability of depreciation.
2. The ld. CIT(A) has erred in not considering ground No. 2 regarding treating the loss of Rs. 93,550/- as speculation loss.
3. Ground No. 2 was not pressed at the time of hearing. Ground No. 2 is therefore dismissed as not pressed. We are now left with ground No. 1, which relates to denial of depreciation on Membership Card issued by the Bombay Stock Exchange.
4. Briefly stated, the facts of the case are that the assessee preferred a claim before the Assessing Officer for depreciation with reference to the value of Membership Card issued by the Bombay Stock Exchange. The Assessing Officer denied the depreciation. On appeal, the ld. CIT(A) has confirmed the order of the Assessing Officer.
5. In support of appeal, the ld. Authorized Representative submitted that the membership Card issued by the BSE was an intangible asset having been used for the purposes of the business and hence the assessee was entitled to depreciation. He invited our attention to the decision of a co-ordinate Bench of this Tribunal in Techno Shares & Stocks Ltd. v. ITO 101 TTJ (Mum.) 349 in which it has been held that BSE card is a capital asset eligible for depreciation Under Section 32 of the I-T Act.
6. Ld. Departmental Representative, on the other hand, supported the order of the CIT(A).
7. We have considered the rival submissions. Section 32 provides for the conditions required to be satisfied for claiming depreciation.
Sub-section (1) of Section 32, in so far as it is relevant to us in the present case, reads as under: (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1^st day of April 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed....
8. It is evident on bare perusal of the aforesaid provisions that allowance Under Section 32 is given to the assessee to compensate him for the depreciation suffered in respect of buildings, machinery, plant or furniture, being tangible assets; and know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the first day of April, 1998, if they are owned, wholly or partly, by the assessee and used for the purposes of business or profession.
9. As already stated above, the allowance Under Section 32 of the I-T Act is given to compensate the assessee for the depreciation suffered by him in respect of specified assets. If the assessee does not suffer any depreciation by way of decrease in the value of property through wear, deterioration or obsolescence, the assessee cannot claim depreciation for the reason that nothing would be available in respect of which the assessee would need compensation by way of allowance Under Section 32 of the I-T Act. Like every other animate and inanimate object, business premises, machinery, plant, furniture and other specified assets employed by the assessee in the course of its business, profession etc., have a limited effective life. The vigor, strength, capability, etc. of every such asset gradually exhaust by the factors of use and time. They undoubtedly aid the assessee to earn the "income" from such business or profession, which is subjected to the levy of tax. Section 32 incorporates a provision for proper recompense of such diminution in the vigor, strength, capability, etc., in order to give a correct picture of the profits from the business, profession etc. Depreciation is thus a measure of the effective life of an asset owing to use or obsolescence during the given period. The object of providing for depreciation is to spread the expenditure incurred on the asset over its effective lifetime, and the amount written off during an accounted period is intended to represent the proportion of such expenditure which has expired during the year. As held by the Hon'ble Madras High Court in G.R. Govindarajulu Naidu v. CIT 90 ITR 13 (Mad.), allowable depreciation amount is a capital loss to the depreciable asset which must be replaced first to give a true or correct picture as otherwise there is bound to be a distorted picture in the Profit & Loss Account. The depreciation, in essence, represents an allowance to compensate for the assets capable of depreciating over a given period.
If the assets are not capable of depreciating, the question of allowance in such a case will not arise. In taking this view, we are supported by the following observations made by the Hon'ble Gujarat High Court in CIT v. Elecon Engineering Co. Ltd. 96 ITR 672 (Guj.) {Affirmed by the Supreme Court in 166 ITR 66 (SC)}: The allowance can be claimed if the asset in question is shown to be capable of diminishing in value on account of any factor known to the prevailing accounting or commercial practice. It is now a recognised fact that the principal factors responsible for the retirement of capital asset and, therefore, responsible for depreciation are : (i) ordinary wear and tear, (ii) unusual damage, (iii) inadequacy, and (iv) obsolescence. The factors listed above include not only those relating to physical deterioration but also those referring to the suitability of the asset as an economically productive unit after a period of time. In depreciation accounting, the cost of the asset is spread over the years of its usefulness in a systematic and sensible manner and in so doing all the aforesaid agents or causes of depreciation are taken into account before the true profits are ascertained (vide Accountancy by William Pickles, third edition, page 168, Accountant's Hand Book by Dickson, fourth edition, Section 17.2 and Principles of Accountancy by Filney and Miller, fifth edition, pages 282-90).
10. It is quite clear from the aforesaid observations which have since been affirmed by the Supreme Court that depreciation is admissible only when the asset in question is shown to be capable of diminishing in value on account of any factor mentioned above. Mere existence of a capital asset is not sufficient to claim the allowance for depreciation. Allowance Under Section 32 is for depreciation of assets.
What is important for claiming depreciation is the fact that the asset in question is capable of diminishing in value over a given period of time, i.e., lifetime of the asset. The Departmental authorities have not examined this aspect of the matter though they have denied the depreciation.
11. Another condition, which is equally important for the assessee to satisfy, is the ownership of capital asset. Mere existence of a capital asset is not sufficient for claiming depreciation. It must also be shown that the assessee owns the asset in question, uses the same for the purpose of his business and satisfies other statutory conditions also. It has been held by the Hon'ble Supreme Court in Stock Exchange, Ahmedabad v. ACIT following the decision in Vinay Bubna v. Stock Exchange 1997 Comp. Cases 874(SC), that the Membership of the Stock Exchange is a personal permission from the Exchange to exercise the rights and privileges attached thereto. The rules notified by the Bombay Stock Exchange in this behalf need to be examined as to whether they vest the right of ownership in the Cardholder. If no such right of ownership is vested in the Card-holder by the aforesaid rules, the assessee would not be eligible to claim depreciation.
12. We are in agreement with the submission of the ld. Authorized Representative for the assessee as also with the decision of a co-ordinate Bench of this Tribunal in Techno Shares & Stock Ltd. v. ITO 101 TTJ 349 that Membership card issued by a Stock Exchange is a capital asset as the term "Capital asset" has been defined by Section 2(14) of the I-T Act to mean property of any kind held by an assessee, whether or not connected with his business or profession. The term property is a term of wide import. As held in Rustom Cavasjee Cooper v.UOI and Ahmed G.H. Ariff v. CWT 76 ITR 471, 476 (SC), the term "Property" in its normal connotation means the "Highest right a man can have to anything, being that right which one has to lands or tenements, goods or chattels which does not depend on another's courtesy; it includes ownership, estates and interest in corporeal things, and also rights such as trade marks, copy-rights, patents and even rights in personam capable of transfer or transmission, such as debts; and signifies a beneficial right to or a thing considered as having a money value, especially with reference to transfer or succession, and to their capacity of being injured". In view of the aforesaid, we are in respectful agreement with the decision of a co-ordinate Bench of this Tribunal (supra) that Stock Exchange card is a capital asset but that by itself is not sufficient for allowance of depreciation unless other statutory conditions stipulated by Section 32 of the I-T Act are fulfilled namely, 1) The asset in question is capable of diminishing in value; 2) The asset is owned by the assessee, and, 3) The asset is used for the purpose of business. In view of the foregoing we set aside the orders of Departmental authorities and restore the matter to the file of the Assessing Officer for a fresh decision in the light of our observations made above indicating clearly, inter-alia, as to whether the BSE card is capable of diminishing in value on account of factors indicating by the Hon'ble Gujarat High Court in its observations referred to above and also as to whether the assessee can be said to be the owner of the card under the rules notified by the Bombay Stock Exchange. Reasonable opportunity of hearing shall be given to the assessee. Appeal filed by the assessee is treated as allowed for statistical purposes.
13. Ground No. 1 taken by the assessee is identical with ground No. 1 taken by the other assessee in ITA No. 7804/Mum/2003. We have already restored identical issue to the file of the Assessing Officer for a fresh decision in terms of the directions given by us. Following the aforesaid order, the issue raised by the assessee in the present appeal is also restored to the file of the Assessing Officer for a fresh decision in terms of the aforesaid directions. Appeal filed by the assessee is treated as allowed for statistical purposes.